Posts Tagged ‘tax deductions’

We’re almost a month into the new fiscal year so it’s high time to review any changes in the cost of living for the average person in Japan. Not counting consumer spending, for the most part the change is negligible. Premiums for national health insurance have gone up for those who belong to the kyokai kenpo system, meaning mainly employees of small and medium-sized companies, from 9.5 percent to 10 percent of salary amount, which works out, on average, to an extra ¥780 a month. The long-term nursing care insurance payments (kaigo hokenryo) for persons aged 40 to 64, whether employed or not, have increased from ¥4,516 to ¥4,697 a month. Reflecting deflationary trends, payouts of basic pension have been reduced by 0.3 percent, but premiums have gone down from ¥15,020 a month to ¥14,980. Unemployment insurance has also been cut from 1.2 percent to 1 percent of salary amount. Utilities are going up. Electric bills will increase from ¥17 to ¥42 a month for an average family, and gas bills will increase from ¥8 to ¥11 a month.

These changes won’t have a major effect on the average household. But one change that may is the shift in tax rules related to the child allowance (jido teate), which was one of the central proposals of the Democratic Party of Japan’s manifesto when it became the ruling party. The DPJ won on the assumption it would pay out ¥26,000 a month per child. By the time the opposition parties got through tearing the proposal apart, the amount had been cut in half, but that payout only lasted a year.

Starting in April, the allowance, which used to be called kodomo teate — the change to jido was supposedly implemented to placate the Komeito Party, who originally came up with the idea years ago under that name — will pay ¥15,000 a month for a child under 3 years old; ¥10,000 a month for the first two children in a family from the age of 3 until they graduate from elementary school; ¥15,000 a month for each child after the second one in the same age group; and ¥10,000 a month for each child in junior high school.

However, in order to get the opposition to accept even this reduced child allowance system, the DPJ had to abolish the dependent child tax deduction starting with tax returns for fiscal 2011, which were just filed this spring. In effect, it means that parents can no longer claim children up to high school, meaning less than 16 years of age, for a tax deduction since they are eligible for the child allowance. High school age children are not eligible for the child allowance so they can still be used as a tax deduction, but the amount of the deduction has been reduced from ¥630,000 to ¥380,000, because the government has now made high school free for everyone, including students who attend private institutions.

Where this change will be felt most immediately is on the local tax (juminzei) bills everyone receives in June. Local tax is calculated based on the national tax returns filed by the middle of March, so because these dependent child deductions no longer apply, individual households’ taxable incomes will increase, meaning the households will see an attendant increase in their local tax bills. Of course, it also means higher taxes on the national level, too, but since these changes weren’t implemented until last fall and salaried workers’ taxes are calculated by the bookkeeping departments of the companies/organizations they work for, they probably didn’t notice the slight monthly increase in their pay statements. They will certainly notice it on the local tax bills, since it shows the amount for the entire year. (It also affects the premiums paid for national health insurance since premiums are based on the previous year’s taxable income.)

So what does this mean in yen terms for the average family? According to the Ministry of Health, Labor and Welfare, taking into consideration both the child allowance payments and the boost in tax liabilities caused by the loss of the child deduction, an average family consisting of one breadwinner earning ¥3 million a year, one full-time homemaker and one child will end up with ¥667 more per month than they had before the DPJ came to power. The same family making ¥5 million a year will end up with ¥375 less per month. If income is between ¥8 and ¥10 million, the average loss is ¥4,083, and if it’s over ¥15 million it’s an average deficit of ¥8,200 a month. To put it another way, according to Sankei Shimbun, the average family making more than ¥4.88 million a year will, on balance, pay more than they did before the DPJ was elected. It’s as good an illustration as any of where politics gets you.

Some members of the Democratic Party in the United States, not to mention a good portion of the American people, are upset that President Barack Obama caved in to pressure from the Republicans to extend the Bush tax breaks for the wealthiest Americans. The issue speaks to one of the most contentious aspects of capitalism as it operates in a democracy: Are people who benefit the most from the democratic free enterprise system obligated to pay a larger share toward its maintenance?

Sorry, you can't take it with you

A corollary to this debate is how much of their wealth should citizens be allowed to pass on to their heirs. In a purely socialist system, ideally it would be zero, but many who don’t necessarily advocate socialist government often support heavy taxation of inheritances for ethical and moral reasons: Why should the child of a rich person have special advantages in life just because of birth? Other people (usually the rich) counter that in a laissez faire economic system, no one has a right to tell anyone else what they can or can’t do with their money.

The Japanese government is now thinking about raising the inheritance tax. As everyone knows the country is running out of money, and already the Democratic Party of Japan has cut the corporate tax, increased the amount of the child allowance, and put off any increase in the consumption tax indefinitely. Because the widening income gap is becoming more of a topic in the news, the DPJ probably feels the public will be receptive to a boost on taxes for richer people.

From heaven Audrey guarantees that your donation to UNICEF is tax deductible

Around this time of year, letters to the editors sections of the national newspapers are filled with tales of people filing income tax returns and coming away confused. One 65-year-old man wrote to the Asahi Shimbun recently about tax deductions for donations to charities and non-profit organizations. He brought receipts for four donations he made, and the tax office accepted two of them, one for UNICEF and the other for Doctors Without Borders, but rejected the other two, both of which were for contributions he made to local NPOs who worked with homeless people. The letter writer was understandably disappointed and quoted the well-know physician, Dr. Shigeaki Hinohara, who is a strong advocate for a broad and transparent tax deduction system so that Japanese people will contribute more freely.

Japanese people donate about ¥260 billion a year to charities, while Americans donate about ¥20.4 trillion, or 8 times as much. Accordingly, Japan has been called, usually by the Japanese themselves, a “no-donation culture,” which makes it sound as if the very idea of contributing to charities were something they can’t get their heads around. This is a myth, or, at least, a convenient means of explaining the lack of structural encouragement for donations. Almost every day on the news you see people collecting money for immediate, specific needs, like earthquake relief or overseas surgery for some poor sick kid, and people always give, but in those situations we’re talking small change. On a larger level people don’t give because they are not encouraged to do so.